Jobs Report Reax: Treading Water

The May jobs report wasn’t spectacular, and it wasn’t disastrous. Unemployment ticked up to 7.6 percent, largely due to a slight increase in labor force participation. The nation gained 175,000 jobs, which is heartening, but the pace is not nearly fast enough to close the jobs gap anytime soon. In fact, according to the Hamilton Project’s calculator, it will take 9 years and 5 months to get back to pre-recession employment levels at this rate.

This still isn’t a great jobs report. It’s just better than expected. The US economy needs ~150K new jobs each month to keep up with population growth, so this is just a little better than a maintenance level for job creation. … Basically, we treaded water, which is always better than sinking, but it really doesn’t get you anywhere.

Despite all the fretting over the slow pace of job creation in the recovery, and despite major shifts in the stance of economic policy, employment has risen at an extraordinarily stable pace.

That stability is a bit illusory. There are wiggles. In February private employers added 319,000 jobs, one of the best performances of the recovery. Last June the gain was only 78,000—the worst since payrolls began growing again. The composition of the employment recovery has also changed. Early on manufacturing helped lead the way forward. Now construction is pulling more weight (though less than many had hoped, and less than professional services and retail). At the first, federal government jobs were flat while state and local government employment tumbled. Now the latter is recovering while federal payrolls are shrinking rapidly. Over the whole of the employment recovery, of course, governments have been a major drag, slimming down by 622,000 workers since February of 2010. Strikingly, work in health care—long the stable core at the heart of the employment recovery—slowed noticeably in May.

Although overall US job growth continues to be weak, we are seeing strong job growth in some sectors of the economy – temporary help services, construction, architectural and engineering services, motor vehicles, and oil and gas extraction. Together, those five sectors added 40,600 jobs in May, which represents more than 23% of the overall increase in US payrolls last month of 175,000. Looking forward, we can expect increased hiring in those sectors, as America’s energy revolution continues, the housing recovery gains momentum, and auto production and sales continue on an upward trajectory.

Job growth was again narrowly concentrated, with the restaurant sector (38,100 jobs), retail trade (27,700) and temporary employment (25,600) accounting for more than half of the job growth in May. These are all low-paying sectors. It is worth noting that the job growth reported in these sectors is more an indication of the weakness of the labor market than the type of jobs being generated by the economy. The economy always creates bad jobs, but in a strong labor market workers don’t take them.

While the headline unemployment rate ticked up one-tenth of a percent in May, a broader measure of joblessness actually showed slight improvement. U-6, a measure of unemployment that includes people who have a part-time job but want full-time work and people who want a job but have given up looking out of frustration, fell to 13.8 percent in May, from 13.9 percent in April. That measure has come down tremendously in the last year, from 14.8 percent in May 2012.

Once again, the fiscal cliff deal and the sequester don’t seem to be showing up in the job numbers yet—though public sector employment was flat and federal employment was down, which might be partly due to cutbacks. In any case, the changes aren’t huge. So far, it looks like we’re continuing to tread water.

Annie Lowrey, on the other hand, thinks sequestration is beginning to show up in the numbers:

The monthly jobs report is starting to show the effects of the $85 billion in across-the-board budget cuts that the government needs to carry out before the end of the fiscal year in September. That’s not much in a $16 trillion economy, of course. But economists still expect it to slow growth and reduce employment in the coming months and years. And it is. Federal employment had been on a downward trend since the start of 2011, with the government shedding about 3,000 or 4,000 positions a month through February. Then sequestration hit on March 1. And in the last three months, the federal work force has shrunk by about 45,000 positions, including 14,000 in May alone. …

Sequestration is having an impact on private businesses as well, even if it is harder to see given the way the recovery continues to chug along. Millions of their customers have less money to spend. The government is trimming back on contracts awarded to private firms. But just because sequestration’s impact is diffuse and cumulative over time does not mean it is not there.

Catherine Rampell focuses on the sequester’s impact on the 7.6% still unemployed:

Almost every state has cut its unemployment insurance benefits as a result of the sequester, according to the National Employment Law Project, a labor-oriented research and advocacy organization. Some states, like Florida and Maine, are cutting the weeks for which jobless workers will continue receiving benefits, and others, like Illinois, are reducing the size of the weekly benefit checks (in Illinois, the cut was 16.8 percent). Some states, like Washington and Idaho, are also laying off employees who work in the labor agencies that help workers apply for benefits and find jobs. North Carolina is ending its federally funded extended unemployment benefits on July 1 because reductions in its state benefits left it ineligible for the federal money.

What we have here is a high stakes game of musical chairs, as payrolls grow at a steady, if not-that-impressive, clip, essentially adding chairs to the game. Meanwhile, more players are coming off the sidelines looking for places to sit. Last month, there were more new players than seats. In future months, we’ll keep a close eye on how that balances out.